ESCONDIDO: PPH eyes another revenue bond offering

Must sustain profit margin to keep building efforts on track

ESCONDIDO ---- Hospital leaders were optimistic Monday night
that Palomar Pomerado Health's finances are healthy enough to
qualify for another round of revenue bonds worth between $125
million and $190 million.

CEO Michael Covert told Palomar Pomerado's governing board at
its regular monthly meeting that officials from various bond rating
agencies recently visited to examine the public health system's
books in the process of rating the bonds, which are critical to
finishing the 11-story hospital complex rising from a hill on
Escondido's western border.

Covert was cautiously optimistic about the visits, saying
ratings agency personnel were "very favorably disposed" with the
hospital's financial condition after looking at Palomar Pomerado's
most recent financial results.

"They noted with great interest the major financial turnaround
that we've had financially," Covert said.

The full hospital board is tentatively scheduled to meet again
on Oct. 27 to find out what credit rating a new set of revenue
bonds would earn and perhaps to make a decision on a public
offering in November.

Although the 2007-08 budget year ended in red ink, things have
gone better recently.

The health care system's most recent balance sheet shows a net
profit of $4.9 million in the first two months of the new fiscal
year, which started on July 1.

For the 2009 fiscal year, Palomar Pomerado made a profit of
$11.3 million, though it planned to net $25 million. Although PPH
did not earn as much as it hoped to, the results are dramatically
different than they were in fiscal 2008 when the enterprise posted
a $600,000 loss.

Moody's Investors Service cited the loss when it announced on
Feb. 26 that it was dropping Palomar Pomerado's credit rating from
A3 to Baa1.

Trustee Ted Kleiter, chairman of PPH's finance committee, noted
that it will be necessary for the health care network, which
operates two hospitals and several skilled nursing facilities in
inland North County, to sustain its profit margin if it is to
borrow more cash against its revenue. He said the final round of
borrowing, combined with $496 million in general obligation bonds
passed by the public in 2004, and additional cash from the
hospital's savings and fundraising efforts, should be enough to
complete what is now estimated to be a $917 million hospital packed
with state-of-the-art medical technology.

Board members said publicly in February that they planned to
sell $110 million in revenue bonds in early 2010. However, Covert
said Monday night that municipal bond rates are beginning to look
favorable and it may be best to move quickly.

Kleiter agreed.

"If you think about it, everybody is warning about impending
inflation, so now is the time to do it," he said.